A Business That Runs on Negative CapitalNarrow moat

VeriSign (VRSN) — moat facet

Total assets of $1.33 billion, equity below zero, and a return on invested capital that cannot be computed because the denominator is negative.

VeriSign has negative shareholders' equity, negative working capital and negative invested capital, and none of it is a warning sign.

VeriSign balance sheet, end of 2025 ($M)$1,384.5MDeferred revenue (total)$1,333.1MCurrent liabilities$1,325.9MTotal assets$580.5MCash and securitiesCurrent liabilities exceed total assets, so operating invested capital is below zero.
There is no return on capital to compute, because there is no capital.

Start with the balance sheet, which is smaller than the revenue statement. Total assets at the end of 2025 were $1,325.9 million — property and equipment of just $213.7 million, goodwill of $52.5 million, and about $580 million of cash and securities.1 Against a company the market values at $26.8 billion.6 There is almost nothing here in the accounting sense, because there is almost nothing required.

Now the liability side, which is where the business actually is. Registrants pay for the year ahead, or several years ahead, so VeriSign collects the money before performing any of the service. Deferred revenue was $1.45 billion at mid-2026, more than the company's entire asset base.2 Customers fund the operation. There is no working capital to finance because working capital is negative by design.

Run the standard return-on-invested-capital calculation and it breaks. Operating income of $1,121.0 million, taxed at the effective rate, gives roughly $866 million of net operating profit after tax. Invested capital — assets less current liabilities less cash — comes out below zero, because current liabilities alone exceed total assets. Dividing by a negative denominator produces a number with no meaning. That is not a data problem; it is the actual economics. This business requires no capital, so there is no return on capital to compute.

The cost structure is equally strange. Total costs and expenses are 32.3% of revenue: cost of revenues about 12%, research and development about 6%, and selling, general and administrative 14.2%.3 The whole company employs 928 people — 256 in cost of revenues, 240 in research and development, 432 in everything else.4 That works out to roughly $1.8 million of revenue and $1.2 million of operating income per employee. There is no sales force worth the name, because the registrars do the selling.

So what happens to the cash? It leaves. VeriSign repurchased 3.4 million shares for $858.6 million in 2025, and has been retiring stock for so long that the accumulated deficit exceeds $11.3 billion and equity has been negative for years. Diluted shares have gone from about 133 million in 2015 to 90.3 million in July 2026 — roughly a third of the company bought back.5 In the second quarter of 2025 the board began paying a dividend for the first time, now $0.81 a quarter.

The verdict is that this is not a moat, it is a consequence of one, and it should be rated accordingly. Capital-free economics are what a contractual monopoly on a prepaid annual service produces. They would evaporate the moment the contract did. But they explain why a company with $1.7 billion of revenue is worth $26.8 billion, and why management can return more than 100% of free cash flow year after year without anyone worrying.

Moat trajectory: Holding steady

Negative invested capital, prepaid customers and a 67.7% operating margin are structural features of a contractual monopoly on an annual service. They have been true for years and will be true next year. They are a consequence of the moat, so they move only when it does.

The number that tests this moat
Reported
Current liabilities against total assets
$1,899.1M against $1,802.8M (June 2026)

Registrants pay in advance, so deferred revenue of $1.45 billion funds the business and invested capital is below zero. Current liabilities exceeding total assets is the sign; the gap closing would mean the prepayments are shrinking.

Source: VeriSign Form 10-Q, Q2 2026 ↗
Aspects of the moat
DIG DEEPER 01
Customers Pay a Year in Advance
$1.45 billion of deferred revenue funds a business whose entire asset base is smaller than the float it holds.
DIG DEEPER 02
Nine Hundred and Twenty-Eight People
$1.8 million of revenue per employee, because the registrars do the selling and VeriSign has never had to meet a customer.
DIG DEEPER 03
Buying Back a Third of the Company
Net income rose 120% over the decade and earnings per share rose 227% — the difference was bought, not earned.
DIG DEEPER 04
The Dividend That Arrived in 2025
Twenty-eight years without a dividend, then $0.77, then $0.81 — a statement about the next decade rather than about the yield.
⚠ Threats to the moat
⚠ THREAT 01
Negative Equity Is Not Free
The June 2026 refinancing swapped 4.75% paper for 5.10% paper, which is what a decade of cheap leverage looks like when it ends.
⚠ THREAT 02
Returning More Than You Earn Has an End
Nothing in reserve, no equity cushion, and a .web launch that is the first thing in decades that might actually need funding.
References
  1. ReportedTotal assets were $1,325.9M at 31 December 2025, including property and equipment of $213.7M, goodwill of $52.5M, cash of $307.9M and marketable securities of $272.6M, against total current liabilities of $1,333.1M; VeriSign repurchased 3.4 million shares for $858.6M in 2025 and carries an accumulated deficit above $11.3 billion.
    VeriSign, Inc., Form 10-K FY2025 — Item 8, consolidated financial statements and notes. Net income $825.7M (2024 $785.7M, 2023 $817.6M); diluted EPS $8.81 ($8.00, $7.90) on 93.8 million diluted shares (98.2, 103.5); income before income taxes $1,068.5M; income tax expense $242.8M. Balance sheet at 31 December 2025: cash and cash equivalents $307.9M, marketable securities $272.6M, property and equipment net $213.7M, goodwill $52.5M, deferred tax assets $233.2M, deposits to acquire intangible assets $145.2M, total assets $1,325.9M; accounts payable and accrued liabilities $298.0M, deferred revenues $1,035.1M current and $349.4M long-term, long-term senior notes $1,788.2M, total current liabilities $1,333.1M — a total stockholders' deficit with an accumulated deficit above $11.3 billion. Net cash provided by operating activities $1,091.1M; the deferred revenues balance increased $80.2M in 2025 ($58.1M in 2024, $27.0M in 2023) and $934.7M of revenue recognised in 2025 had been in the opening deferred balance. Major customers note: the largest customer accounted for approximately 31% of revenues in 2025 and approximately 32% in 2024 and 2023, and the Company does not believe the loss of this customer would have a material adverse effect because end-users would transfer to its other existing customers. Dividends of $0.77 per share were declared in each of the three quarters from the second quarter of 2025, totalling $2.31 per share and $215.2M, accounted for as a reduction of additional paid-in capital; a dividend of $0.81 per share was declared on 3 February 2026. — FY2025 · publ. 2026-02-05 · source ↗
  2. ReportedDeferred revenues were $1.45 billion at 30 June 2026, and the quarterly dividend is $0.81 per share, first paid in the second quarter of 2025.
    VeriSign, Inc., Reports Second Quarter 2026 Results — Form 8-K Exhibit 99.1, 23 July 2026. Revenue $435 million, up 6.0% year over year; operating income $296 million against $281 million; net income $217 million and diluted EPS $2.38 against $207 million and $2.21. Cash, cash equivalents and marketable securities $1.03 billion, up $454 million from year-end 2025; deferred revenues $1.45 billion at 30 June 2026, up $64 million from year-end. Cash flow from operations $232 million. On 26 June 2026 VeriSign issued $550 million of 5.10% Senior Notes due 2031 and on 20 July 2026 used the proceeds with cash on hand to redeem $550 million of 4.75% Senior Notes due 2027. 0.7 million shares repurchased for $197 million; an additional $884 million authorised effective 23 July 2026 bringing the total authorisation to $1.50 billion; a quarterly dividend of $0.81 per share declared on 20 July 2026. The domain name base ended at 179.1 million .com and .net registrations, a 5.1% increase year over year and a net increase of 3.05 million in the quarter; a record 12.7 million new registrations were processed against 10.4 million; the final first-quarter 2026 renewal rate was 76.3% against 75.5%. CEO Jim Bidzos: the record of 100% availability for the .com and .net domain name resolution system was extended to 29 years, and more than 100% of free cash flow was returned to the investing public through dividends and share repurchases. The .web top-level domain has been delegated into the DNS root zone with VeriSign as the designated registry operator. — Q2 2026 · publ. 2026-07-23 · source ↗
  3. ReportedTotal costs and expenses were 32.3% of revenue in 2025: cost of revenues 11.8%, research and development 6.3% and selling, general and administrative 14.2%.
    VeriSign, Inc., Form 10-K FY2025 — Item 7, Management's Discussion and Analysis. Revenues $1,656.6M (+6%) against $1,557.4M in 2024 (+4%) and $1,493.1M in 2023; operating income $1,121.0M (+6%). Costs as a percentage of revenues: cost of revenues 11.8% (12.3%, 13.2%), research and development 6.3% (6.2%, 6.1%), selling, general and administrative 14.2% (13.6%, 13.7%), total costs and expenses 32.3% (32.1%, 33.0%), operating income 67.7% (67.9%, 67.0%), interest expense (4.6)%, net income 49.8% (50.4%, 54.8%). The .com and .net domain name base was 173.5 million at 31 December 2025 (+3%) against 169.0 million in 2024 (−2%) and 172.7 million in 2023. VeriSign processed 41.7 million new .com and .net registrations in 2025 against 37.4 million in 2024; the final third-quarter 2025 renewal rate was 75.4% against 72.2%. The registry-level wholesale fee rose from $9.59 to $10.26 for .com effective 1 September 2024 and from $9.92 to $10.91 for .net effective 1 February 2024. Geographic revenues: U.S. $1,093.1M (+6%), EMEA $279.4M (+12%), APAC $184.6M (+5%), other $99.5M (+3%). VeriSign repurchased 3.4 million shares for $858.6M in 2025, with $1.08 billion remaining under a programme authorised to $1.50 billion effective 24 July 2025. — FY2025 · publ. 2026-02-05 · source ↗
  4. ReportedVeriSign employed 928 people: 256 in cost of revenues, 240 in research and development and 432 in selling, general and administrative.
    VeriSign, Inc., Form 10-K for the fiscal year ended 31 December 2025 (SEC, CIK 1014473) — Item 1, Business. VeriSign operates the .com and .net registries under registry agreements with ICANN, and .com additionally under a Cooperative Agreement with the U.S. Department of Commerce (most recently amended by Amendment 35 on 26 October 2018, automatically renewed on the same terms on 30 November 2024 for a successive six-year term, renewing again on 30 November 2030 unless the DOC gives notice). The .com Registry Agreement runs a six-year term that must be renewed or extended by 30 November 2030 and contains a presumptive right of renewal, with ICANN able to terminate or refuse in certain prescribed circumstances; it permits an increase to the Maximum Price of up to 7% over the previous year in each of the final four years of each six-year period, the current period having begun on 26 October 2024. The .net Registry Agreement was renewed on 29 June 2023, runs to 1 July 2029 and permits increases of up to 10% each year. VeriSign remits $0.2575 to ICANN quarterly for each annual .com registration and $0.25 for each .name registration. It also operates .cc under an agreement with the Cocos (Keeling) Islands, operates .name and internationalised gTLDs, provides back-end services for .edu, performs the Root Zone Maintainer function for ICANN and operates two of the thirteen global internet root servers. Retail pricing is established by registrars; VeriSign must provide ICANN-accredited registrars with non-discriminatory access, faces marketing and bundling limits, must submit new Registry Services for ICANN review, and is subject to vertical-integration restrictions that apply solely to .com — obligations it states do not apply to ccTLDs and other gTLDs and may create a competitive disadvantage. Named registry competitors include CentralNic, China Internet Network Information Center (CNNIC), DENIC eG, GoDaddy, Google, Identity Digital, Nominet, Public Interest Registry, Radix and .xyz. Employee headcount 928 (256 cost of revenues, 240 research and development, 432 selling, general and administrative). — FY2025 · publ. 2026-02-05 · source ↗
  5. Reported90,300,000 shares were outstanding at 17 July 2026, against about 133 million diluted shares in 2015.
    VeriSign, Inc., Form 10-Q for the quarter ended 30 June 2026 (SEC, CIK 1014473). Revenues $434.6M for the quarter and $863.5M for the six months, each up 6%; operating income $296.3M and $589.9M, up 6% and 7%. Net income $216.5M and $431.0M; diluted EPS $2.38 and $4.71 on 91.1 and 91.4 million diluted shares. Total assets $1,802.8M; deferred revenues $1,084.8M current and $364.1M long-term; current senior notes $549.3M and long-term senior notes $1,785.1M. Net cash provided by operating activities $504.0M for the six months against $493.8M; deferred revenues increased $64.5M. 90,300,000 shares of common stock were outstanding at 17 July 2026. The domain name base was 179.1 million at 30 June 2026, up 5.1%; 12.7 million new registrations were processed in the quarter; the final first-quarter 2026 renewal rate was 76.3%. $666.0 million remained for repurchases at 30 June 2026 before an additional $884.2 million was authorised effective 23 July 2026. — Q2 2026 · publ. 2026-07-23 · source ↗
  6. ReportedVeriSign trades at about $297 a share, a market capitalisation near $26.8 billion on 90.3 million shares, roughly 31.8 times trailing earnings and 15.7 times trailing sales, at a dividend yield of about 1.1%.
    VeriSign (NASDAQ: VRSN) market data — share price about $297 and market capitalisation about $26.8 billion on 90.3 million shares outstanding; trailing price/earnings about 31.8 and price/sales about 15.7 on trailing revenue of $1.71 billion and trailing net income of $850 million; price/book not meaningful on negative shareholders' equity; dividend yield about 1.1%. — August 2026 · publ. 2026-08-27 · source ↗
Sources
Generated September 23, 2026